New bills could improve ethics in student loans

by Beacon Staff • September 30, 2009

the U.S. House of Representatives has passed legislation to reform student lending.,Two years after a congressional report detailed corruption and conflicts of interest in the student loan industry, with one such case leading to the firing of a former dean of enrollment at Emerson,

the U.S. House of Representatives has passed legislation to reform student lending. The Student Aid and Financial Responsibility Act (SAFRA) was passed through the United States House of Representatives on Sept. 17 after spending three months in committee by a vote of 235 to 171.

If passed by the Senate, the legislation would bar private lenders from administering government loans. Instead, the federal government would directly offer aid to students in need.

In the past, the government guaranteed

the loans doled out by the private banks and loan companies in addition to paying them a subsidy, making the practice virtually risk free for the lenders.

In 2007, inquiries by various Attorneys

General and a congressional investigation

commissioned by Senator Ted Kennedy, who was the chairman of the Senate Committee on Health, Education, Labor and Pensions, found that financial aid officers at colleges and universities across the country were engaged in ethically dubious practices.

Daniel Pinch, Emerson's former dean of enrollment and vice president of administration and finance, was fired after it was discovered that he had accepted $36,000 from Collegiate Funding Services Inc. to exclusively endorse that lender's services to Emerson students.

Pinch was also named in Kennedy's report, which detailed his acceptance of merchandise and services, in addition to embarking on trips paid for by Citizen's Bank, which at the time was an Emerson

preferred lender.

According to the report, these banks sought to curry favor with aid officers like Pinch so that the lucrative government-ensured loans would be funneled their way.

SAFRA would in time eliminate the chance for such "quid pro quo" relationships by eliminating private lenders

altogether. In addition, the bill simplifies the process of applying for federal aid by reworking the Free Application for Federal Student Aid paperwork and increasing the amount available for individual Pell grants to $6,900 in 2010.

Funding for these government grants received an additional boost when Congress passed the American Recovery and Reinvestment Act in January, which increased the size of Pell grant awards by $700.

According to the Emerson Web site, the average financial award is $13,000. Even taking into account that an average figure may be skewed by the fact that financial awards range from nothing to a full ride, the average is still over $15,000 short of the full tuition of $29,408.

Students often borrow loans in order to make up the difference. According to the New York Times, only about a third of students graduated with no debt in 2007-08.

U.S. Representative Michael Capuano, whose district includes most of Boston, Cambridge

and Somerville, along with nine out of 10 of his fellow Massachusetts representatives, voted in favor.

Representative Barney Frank did not vote on the bill.

"We cannot continue just to wring our hands about our competitive place in the world ... we must do something about it," Miller said during a debate in the House.

Freshman Michelle King, a print journalism major, said she feels similarly.

"I just think that more opportunities for students [are] always a good thing, and with more college education, it would lead to better jobs later on," she said.

Liz Cormack, a freshman and a federal loan holder, said she was skeptical of federal involvement in financial aid.

"I guess it's more practical, but the principle of it ... there's no one else involved in the process, it's just the government," Cormack said. "And for me, just for my personal beliefs, I don't like that."

Cormack wasn't the only Emerson student wary of increased government control over lending.

"Private loaners...why not have them? I think that [the bill] might lead to ... bigger government," said Danielle Malambri, a sophomore film major who has a Stafford loan, a type of federal aid that does not accrue interest.

However, some appreciate the simplicity promised by SAFRA. Instead of having to find a private lender themselves,

students would receive money directly from the federal government.

"It'll be a lot easier for me," said Justyna Lewinska, a sophomore

marketing major who also took out a federal loan. "You don't have to go to Sallie Mae, you don't have to go to Bank of America ... I'm all for it."